An application under Section 95 of the IBC against a personal guarantor fails if the financial creditor cannot establish a clear nexus and documentary continuity between the original guaranteed debt and the current outstanding liability, especially when the underlying loan accounts were transferred or reclassified.

O R D E R

This petition is filed by the Canara Bank (“Financial Creditor/FC”) under Section 95 of Insolvency and Bankruptcy Code 2016 (“IBC”) read with Rule 7 (2) of the Insolvency and Bankruptcy (Application to Adjudicating Authority for Insolvency Resolution Process for Personal Guarantors to Corporate Debtor) Rules, 2019, seeking an order for initiation of the Personal Insolvency Resolution Process (PIRP) against Mr. A.S. Gopal, who is the Personal Guarantor (PG/Respondent) of M/s A.L.Sudershan Constructions Company Limited, Corporate Debtor (CD).

APPLICATION

1. It is submitted that the Corporate Debtor is engaged in the business of building construction and civil engineering activities. The Corporate Debtor had availed various financial facilities from the Financial Creditor, including working capital facilities in the nature of term loans, overdraft facilities, and SBLC/BG facilities under different loan agreements.

2. In order to secure the repayment of the said financial assistance, several Guarantors, including Mr. A.S. Gopal, executed Guarantee Agreements¹Page 55 of the Application dated 28.07.2005 in favour of the Financial Creditor, thereby undertaking to repay the dues in the event of default by the Corporate Debtor.

3. It is contented that the Corporate Debtor committed default in repayment of the outstanding dues and the account was classified as Non-Performing Asset (“NPA”) on 11.06.2006. The Corporate Debtor has repeatedly acknowledged the outstanding liability by way of acknowledgements of debt²Page 70 of the Application executed on 30.09.2007, 30.06.2008, 01.06.2011, 20.05.2014, and 11.05.2017, as well as through multiple One-Time Settlement (“OTS”).

4. Later, the Financial Creditor issued a Legal notice³Page 77 of the Application dated 10.06.2019 to the Corporate Debtor, calling upon it to repay the entire outstanding amount. Despite the issuance of such recall notices, neither the Corporate Debtor nor the guarantors, including the Personal Guarantor herein, have repaid the outstanding dues.

5. It is submitted that, in view of continued default, the Financial Creditor and its associate banks initiated recovery proceedings before the Learned Debt Recovery Tribunal by filing Original Application bearing O.A. No. 547/2019 on 20.06.2019, which is pending adjudication under the provisions of the Recovery of Debts and Bankruptcy Act, 1993.

6. It is stated that the Financial Creditor also initiated Corporate Insolvency Resolution Process against the Corporate Debtor under Section 7 of the IBC, bearing CP (IB) No. 324/7/HDB/2020, which was admitted by this Tribunal vide order dated 06.05.2022.

7. It is submitted that as on date, a sum of Rs. 495,09,50,398.81/- remains due and payable by the Corporate Debtor and the Personal Guarantor to the Financial Creditor.

8. It is further submitted that pursuant to the notification of the Insolvency and Bankruptcy (Application to Adjudicating Authority for Insolvency Resolution Process for Personal Guarantors to Corporate Debtor) Rules, 2019 with effect from 01.12.2019, the Financial Creditor is entitled to initiate insolvency proceedings against the Personal Guarantor.

9. In compliance with the statutory requirements, the Financial Creditor issued a Demand Notice dated 28.11.2023 in Form B under Rule 7 (1) of the said Rules to the Personal Guarantor, c